Spok Holdings, Inc.
Q1 2021 Earnings Call Transcript

Published: 30 Apr 2021

[Operator:]

Ladies and gentlemen, good morning and welcome to Spok's 2021 First Quarter Investor Call. Today's call is being recorded. On line today we have Mr. Vince Kelly, President and Chief Executive Officer; and Mr. Mike Wallace, Chief Operating Officer and Chief Financial Officer. At this time for opening comments, I will turn the call over to Mr. Wallace. Please go ahead sir.

[Mike Wallace:]

Good morning. Thank you for joining us for our 2021 first quarter investor update. Before we discuss our operating results, I want to remind everyone that today's conference call may include forward-looking statements that are subject to risks and uncertainties relating to Spok's future financial and business performance. Such statements may include estimates of revenue expenses and income as well as other predictive statements or plans which are dependent upon future events or conditions.

[Vince Kelly:]

Thanks Mike and good morning. Thank you everyone for joining us on our first quarter 2021 update call. As always I hope all of you your friends and families are and remain safe. Unfortunately, we've had recently lost an employee and we're down another -- we have another employee down hard right now with COVID along with his spouse. We're praying for their speedy and full recovery. In the first quarter, we saw positive indicators that our customers are recovering operationally and financially from a very challenging year. In 2020, most of our customers were essentially shut down for new business and were unavailable to work with us to install existing backlog. As a result of the pandemic primary spending focus went to patient monitoring respiratory and vital science equipment and medication administration and lab equipment including PPE. Health care, IT, and enterprise software products like ours understandably moved down on the priority list. That is starting to change. Like many companies last year Spok followed the advice of health care professionals and essentially shut down our offices and stopped all business travel. That made it very difficult for our sales teams to prospect for new business while working from home. Our customers were unable to focus on new projects or even grant us access to their facilities to install existing projects. The reality is that with a new product like Spok Go, we just can't sell effectively over Zoom. Early last year we knew this pandemic would impact our results and we took steps to preserve cash continue investing in product and R&D keep the team together by implementing across-the-board furloughs versus select RIF. We heard significant feedback from our employee base thanking us for our approach and empathizing our decisions.

[Mike Wallace:]

Thank you Vince. Before I review our financial highlights first quarter of 2021, I would again encourage you to review our 2021 Form 10-Q, which we expect to file later today contain significantly more information about our business operations and financial performance than we will cover on this conference call. As Vince noted, we were encouraged by our performance in the first quarter and believe that it provides a foundation for continued momentum for the balance of 2021. The momentum that we saw over the last two quarters of 2020 has carried into 2021 and we were pleased to see several operating metrics return to levels consistent with those pre-pandemic.

[Vince Kelly:]

Thanks Mike. Before we open the call to your questions, I'd like to update you on our business outlook and our strategic direction. Before I do, I'd like to briefly discuss the recent change that was made to Spok's Board of Directors. Earlier this month in support of the Board's refreshment process, Brian O'Reilly, a member of the Board of Directors informed the company that he will not stand for reelection to the Board at the company's 2021 Annual Meeting of Stockholders. Let me be clear that Brian's decision was not the result of any disagreement with the company on any matter relating to operations, policies or practices. He will remain a Director and maintain this committee memberships through the 2021 Annual Meeting. I want to take this opportunity to thank Brian for his leadership on the Board and the contributions he has made to the company. Now with respect to key goals and business outlook, let me take a few moments to outline our outlook and strategy for 2021. As we've talked about in the past about five years ago we embarked on a transformation that was a title shift in our strategic direction for health care our largest customer segment. The strategy pivot signaled a very intentional move from offering our customers point solutions or single product solutions for call center software, alarm management and secure messaging to offering them a cloud-based, single integrated clinical communication and collaboration platform called Spok Go. In many respects this past year was the most challenging for Spok in our history from both a management and operational perspective. Yet despite this upheaval, our mission and vision has remained unchanged. Simply put, our mission is to create beautiful software that delights our customers. Our vision is to be the strategic partner of choice for enterprise-grade, clinical communications and patient care coordination. Our strategy to support that mission and vision is threefold. It includes, first, minimize the planned customer attrition in our wireless product line by offering a comprehensive suite, state-of-the-art wireless products and services integrated with our software offerings. Second, support our Spok Care Connect on-premise communication suite that was driven by the 2011 acquisition of Amcom Software. And third, develop new applications and capabilities as we did in early 2020 with the introduction of the cloud-native subscription-based Spok Go integrated communications platform. With respect to our capital allocation strategy, our overall goal has been to attain sustainable business growth while maximizing long-term shareholder value through our multifaceted capital allocation program, which has included over $500 million in dividends and over $115 million in share repurchases, as well as key strategic investments to improve our operating platform and infrastructure in order to drive long-term organic growth. For 2021, we're committed to continue paying $0.125 per share quarterly on our dividend while keeping an eye on profitability. We'll continue to evaluate our capital allocation strategy on a quarterly basis to communicate our plans with you with respect to dividends, share repurchases and other uses of capital each quarter when we report earnings. We are focused on the huge opportunity in front of us in clinical communications. From a business configuration and strategy perspective, we believe we are strongly positioned. We've created a long-term organic growth engine in Spok Go. We maintain a source of strong recurring revenue in our patient service lines, we run the largest paging offering in the world, we've integrated its operations deeply with our software operations while continuing to enhance our paging platform and user devices and there'll be more news to come on this in coming quarters. We believe with these two assets is going for us our best financial results are ahead of us and Spok's future is bright. We're committed to delivering long-term shareholder value also paying due to our core values of putting the customer first, providing solutions that matter, innovation and accountability. I'd like to briefly comment on that last one that is so often overlooked in the world and greatly impacts our daily lives. Like you, I've been shocked at the news lately too often includes the multiple hate crimes against black, indigenous and people of color and Asian-American Pacific Islander communities. We are all saddened by the avoidable killing last spring of George Floyd, most recently of Daunte Wright. We all want to use these experiences to find a better way to treat each other and feel fairly and equitably with everyone regardless of the color of their skin. I believe there are a lot of good people in this world and it's their ideas and their social mores that should prevail. I want to remind everyone that Spok strives to be a safe place to work for people of all backgrounds. We condemn racism and xenophobia in all forms and we are united in working toward a more inclusive future for all of our team members and colleagues. This is why we formed the diversity and inclusion council last year. And moreover this is an organizational focus area we will continue to develop prioritize and move forward. This is our goal at Spok, and I believe this is the culture we have created. We want all our employees to feel safe and welcome. We want all our employees to feel valued empowered, able to express their diverse opinions and ideas and to recognize that their contributions make a difference. Thank you. Operator, you can now open the call for questions.

[Operator:]

Thank you. And our first question comes from Ryan Vardeman with Palogic.

[Ryan Vardeman:]

Thanks for taking the question. I appreciate the color that you guys gave as it relates to the ARR progress. It sounds like you're still expecting somewhere around $3 million of revenue coming from Spok Go this year. That kind of puts you close to $10 million maybe $8 million, or $9 million of ARR exiting the year on a run rate basis. Is that kind of the right way to be thinking about, how you guys are thinking about pipeline and pipeline conversion?

[Mike Wallace:]

Hey, Ryan it's Mike. It's the right way to think about it. As I said in my comments, the litmus test here is going to be obviously the level of bookings and the timing of those bookings throughout the year that will drive the SaaS revenue. Probably, what I'm most focused on given the size and timing of those bookings once we have a full year of 2021 is really to see what the exit rate is from an ARR perspective as we exit 2021. But theoretically, yes, you're thinking about it the right way.

[Ryan Vardeman:]

Okay. That would be quite a nice growth trajectory for the next two or three quarters, if you're anywhere close to that. And then you brought up in your prepared remarks that you spent around $85 million investing in the Spok Go project. Do you think that you have built a business that will give you a – that's worth more than what we spent so far and will give us a good rate of return kind of from 2015 and beyond?

[Vince Kelly:]

We absolutely do Ryan. No question about it. That's why I've been a buyer of Spok stock the last three quarters. Absolutely.

[Ryan Vardeman:]

Great. Thank you.

[Operator:]

Speakers at this time, we have no one else in the questioning queue.

[Vince Kelly:]

Okay. Well, look everyone thank you for joining us this morning. Much appreciated. We look forward to speaking with you again after we release our second quarter earnings in late July. Everyone stay safe out there, and have a great day. Thank you.

[Operator:]

Ladies and gentlemen, that concludes this morning's presentation. Thank you for your participation. You may now disconnect.